In World Trade, China Edges Out The U.S.

“The U.S. is no longer number one in world trade.  That title now belongs toChina, with ramifications down the road for the dollar as go-to currency for the pricing of tradable goods.

Bloomberg reported on the numbers from Beijing on Monday, Feb. 11, noting that U.S. exports and imports of goods last year totaled $3.82 trillion, according to the U.S. Commerce Department. Meanwhile, China’s customs administration reported last month that the country’s total trade in goods in 2012 amounted to $3.87 trillion, just barely toppling the U.S. off its pedestal.

China’s increasing influence threatens to disrupt regional trading blocs as it becomes the most important commercial partner for countries not only in Europe, but also far away in places like Brazil, where the U.S. has played second fiddle now for more than three years running….”

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“Signals out of the ultra-secretive executive suite at Apple increasingly point to an announcement soon of a dividend increase, buyback or another form of capital distribution to shareholders. The latest came from an analyst report Sunday.

“While trying to extract information fromAAPL (Apple) management is like squeezing ‘water from a rock,’ we did speak with AAPL CFO (Peter Oppenheimer) this past Friday and found the conversation helpful,” wrote ISI analyst Brian Marshall in a note to clients Sunday. “We touched upon a variety of topics, including capital allocation framework.”

(Read More: Apple and Samsung: Frenemies for Life)

After speaking with Oppenheimer, ISI’s Marshall recommended back to the company in Sunday’s report that it increases its current 3-year allocation plan amount to $60 billion from $45 billion. His plan, which would use 50 percent of the firm’s annual free cash flow, puts two-thirds of the cash toward a dividend and the rest to buy back shares.

Marshall’s conversation followed a rare press release Thursday from Apple, which came in response to a call from activist investor David Einhorn for the world’s largest technology company to issue preferred stock.

“By early last year, Apple’s cash balance had built to a point beyond what we needed to run our business and maintain flexibility to take advantage of strategic opportunities, so we announced a plan to return $45 billion to shareholders over three years,” stated the company in response to Einhorn. “Apple’s management team and Board of Directors have been in active discussions about returning additional cash to shareholders.” …”

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“U.S. antitrust authorities over the past year have been particularly active, blocking acquisitions in industries from beer to e-books. But the potential deal to create the world’s biggest airline likely would fly clear of government objections, experts said.

American Airlines parent AMR Corp. and US Airways Group Inc. are in final negotiations on a marriage that could be announced as early as this week. The combined company would surpass United Continental Holdings Inc. as the No. 1 carrier by traffic and control about one-quarter of U.S. domestic capacity.

But the deal involves only about a dozen overlapping routes, similar to the number in the most recent three big airline mergers, according to research by J.P. Morgan . Those transactions were cleared by the Justice Department, with the carriers in only one deal required to relinquish takeoff and landing slots to maintain competition….”

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“Novo Nordisk Chief Executive Lars Rebien Sorensen said the company was “surprised and disappointed” by a letter it received Friday from the U.S. Food and Drug Administration demanding additional cardiovascular data. The Danish company, which is the world’s largest maker of insulin, said it doesn’t expect to be able to provide the information during 2013.

Shares of Novo Nordisk fell sharply Monday following the disclosure. The Danish drug maker said the FDA’s letter “is not expected to significantly impact Novo Nordisk’s expectations for the company’s financial results for 2013.”

The news comes less than two weeks after the company said the launch of Tresiba and a related product, Ryzodeg, was reason to be optimistic heading into 2013. Demand for insulin has been growing worldwide and Novo Nordisk’s new product is expected to sell at a premium over competitors’ drugs.

Novo Nordisk announced in January that Tresiba had been approved in the European Union. Launch in the U.K. and Denmark is to take place during the first half year of 2013, with other EU countries to follow through the end of 2014….”

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“Apple Inc. is experimenting with designs for a watch-like device that would perform some functions of a smartphone, according to people briefed on the effort.

The company has discussed such a device with its major manufacturing partner Hon Hai Precision Industry Co., one of these people said, as part of explorations of potentially large product categories beyond the smartphone and tablet.

Apple’s efforts come as companies have introduced various kinds of wearable gadgets, mainly designed to measure physical activity. More sophisticated devices face big technical challenges, but also are attracting investments from large technology companies.

Foxconn, as Hon Hai is also known, has been working on a spate of technologies that could be used in wearable devices, one of these people said. In particular, the Taiwan-based company has been working to address the challenges of making displays more power-efficient and working with chip manufacturers to strip down their products. The technologies are aimed at multiple Foxconn customers, this person said.

Capabilities that Apple is exploring for wearable devices remain unclear. But analysts and investors who have been tracking the field predict the company would release a product with many different functions and that the device would work closely with the iPhone.

Apple has been exploring the area for some time, according to the people briefed on the effort, and has hired employees with backgrounds in sensors and related technologies in recent years.

An Apple spokeswoman declined to comment. A spokesman for Foxconn declined to comment. The New York Times earlier reported that Apple is experimenting with wristwatch-like devices….”

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“The world’s largest economies are set to diverge in coming months with few signs that a broad-based recovery in growth is imminent, according to the Organization for Economic Cooperation and Development’s composite leading indicators.

The leading indicators for December, released Monday, point to a pickup in growth in the U.S., Japan, the U.K. and Brazil, but suggest growth will remain weak by historic standards in many other big nations.

Economic data releases for the final three months of last year show that many developed economies contracted during the period, including the U.S., the U.K. and Germany.

The Paris-based think tank said Monday that its leading indicator of economic activity in its 34 developed-country members rose to 100.4 in December from 100.3 in November.

A reading above 100.00 means economic growth is set to be above the trend rate, which itself varies widely among large economies.

However, behind the slightly stronger overall measure, the leading indicators for individual economies point to differing fates.

“Composite leading indicators (CLIs)…show diverging growth patterns in the economic outlook of major economies,” the OECD said.

“In the United States and the United Kingdom, the leading indicators continue to point to economic growth firming,” the OECD said, while for Japan and Brazil “signs of growth picking up are emerging.”

The euro zone remains a weak spot in the global economy, although it is unlikely to slow further, it said….”

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“Sensing better times ahead, investors have pushed the Dow Jones Industrial Average up this year near its record high. But a different mood is pervading U.S. companies, where executives are less optimistic about the global economy and their own prospects, and many are lowering financial forecasts.

Fourth-quarter operating earnings topped diminished expectations, rising 7.3% at the 339 members of the Standard & Poor’s 500-stock index that have reported results, while revenue rose 5.9%, according to Thomson Reuters. But the companies warn that the current quarter will be more challenging, and analysts project first-quarter earnings at S&P companies will rise just 1.7%, Thomson Reuters says, or less than half what they were predicting at the beginning of the year.

Sixty-three S&P companies have lowered their forecasts for first-quarter earnings, according to FactSet Research, while 17 have raised them, the largest disparity since the firm began tracking the data in 2006.

Many executives see shrinking economies in Europe. Closer to home, they worry about hesitant U.S. customers, chilled by continued Washington gridlock.

In a sign of executive caution, a Wall Street Journal survey of 50 S&P companies found they plan to increase investment this year by 2%, signaling a dearth of big growth opportunities. Through the first nine months of 2012, S&P companies boosted investment 8%, following a 20% increase in 2011….”

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“There’s a growing meme that the market and the economy are about to have a date with destiny.

The thinking is this: Markets have surged all year like there’s not a care in the world. On the other hand, the economy has already been buffeted by one major headwind (the end of the payroll tax holiday) and it could be hit by another (the upcoming sequestration spending cuts. As such, we’re about to know whether the economy can really justify the market rally, or whether risky assets will have to come floating back down to earth….”

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“The Justice Department decision to sue Standard & Poor’s has investors asking why Moody’s Investors Service and Fitch Ratings weren’t targeted for awarding the same top grades to troubled mortgage bonds and other debt securities.

The Financial Crisis Inquiry Commission and a Senate panel laid the blame on S&P, Moody’s and Fitch for inflated ratings on mortgage-backed securities and collateralized debt obligations that helped cause the worst financial crisis since the Great Depression. Together, they provided 96 percent of all ratings for governments and companies in the $42 trillion debt market in 2011.

The U.S., in a lawsuit filed Feb. 4 in federal court in Los Angeles, is alleging that the unit of New York-based McGraw-Hill Cos. defrauded investors by failing to adjust its analytical models or taking necessary steps to accurately reflect the risks of the securities because it was afraid of losing business.

The federal case was assigned to U.S. District Judge David O. Carter in Santa Ana, California.

S&P lowered the U.S. government’s credit rating one step to AA+ from the top AAA rank on Aug. 5, 2011, after months of wrangling between President Barack Obama and Congressional Republicans over whether to raise the federal debt limit. Bond investors repudiated the downgrade and U.S. borrowing costs fell to record lows as Treasuries gained the most since 2008.

S&P has used this as a defense. Floyd Abrams, the Cahill Gordon & Reindel LLP lawyer representing the company, said in a Feb. 5 appearance on Bloomberg Television that investors required two ratings on CDOs before they would buy, yet only S&P has been accused of acting in bad faith.

Ed Sweeney, an S&P spokesman, declined to elaborate on Abrams’s comments.

For more, click here.

For a timeline of the allegations by the U.S., click here.

S&P Case To Turn on Question of Fraud, Not First Amendment….”

“Treasury 10-year notes declined for the first time in four days as the U.S. government prepared to auction $72 billion in coupon-bearing securities this week.

Longer maturities led losses as economists said a report in two days will show retail sales rose in January amid an improving labor market. The government is scheduled to sell $32 billion of three-year notes tomorrow, $24 billion in 10-year debt the following day and $16 billion in 30-year bonds on Feb. 14. President Barack Obama intends to use his State of the Union address this week to focus on job creation, marking a renewed emphasis on the economic issues.

“We’re in a tight range and the auctions this week will be the focus for Treasuries,” said Barra Sheridan, a rates trader at Bank of Montreal in London. “The market can cheapen up into those sales and the 10-year should auction above 2 percent.”

The 10-year yield rose three basis points, or 0.03 percentage point, to 1.98 percent as of 7:34 a.m. in New York, according to Bloomberg Bond Trader prices. The 1.625 percent note due in November 2022 declined 7/32, or $2.19 per $1,000 face amount, to 96 7/8. The yield declined seven basis points last week.

Treasuries handed investors a 0.8 percent loss this year through Feb. 8, compared with a 0.5 percent decline for an index of government bonds around the world, according to Bank of America Merrill Lynch data. The benchmark 10-year yield climbed to 2.06 percent on Feb. 4, the highest level since April 12.

‘Cleaning Up’…”

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“Apple Inc.’s profit margins are falling back to levels not seen since sales took off after the 2007 debut of the iPhone, as competition and lack of breakthrough products pressure the company to lower prices.

Concern over falling margins helped prompt a 33 percent decline in Apple shares from a record high of $705.07 on Sept. 21, making it the worst-performing stock in the Standard & Poor’s 500 Index in the same period. Last week, Apple said the board and management are discussing the return of more money to shareholders, after a proposal by Greenlight Capital Inc.’s David Einhorn to pay out more of its $137.1 billion in cash and securities, possibly with higher-yielding preferred stock.

The latest quarter’s drop in gross margin to 39 percent from 45 percent a year earlier was caused by the introduction of the iPad mini, other products with higher costs and price cuts for existing products, Apple said. Unless Chief Executive OfficerTim Cook unveils a revolutionary new gadget with premium pricing, Apple shares will remain under pressure.

“It will be almost impossible for Apple to maintain the margins it’s had in the last few years,” David Yoffie, a professor at Harvard Business School, said in an interview. “They’ve been able to charge pretty much whatever they wanted for their products, but competition is increasing.”

A central challenge is slowing sales of the iPhone, Apple’s best-selling and most-profitable product that accounts for 56 percent of revenue. Samsung Electronics Co., HTC Corp. and other rivals are introducing cheaper and feature-laden smartphones and tablets based on Google Inc.’s Android software.

Steve Dowling, a spokesman at Apple, declined to comment.

Margin Pressures…”

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“Gold declined to the lowest price this month in New York on speculation that physical demand will slow during this week’s Lunar New Year in Asia.

China, 2011’s second-biggest gold buyer, after India, and most Asian markets are closed for this week’s holiday. Gold is down 1 percent this year after rallying for a 12th straight year in 2012 as nations from the U.S. to China pledged more steps to boost economic growth. Haruhiko Kuroda, one of the potential candidates to head the Bank of Japan, said today in an interview in Tokyo that additional monetary easing can be justified this year.

“The absence of the Chinese market this week means demand from other regions has a larger gap to plug, thus exposing prices to a fragile floor,” Suki Cooper, an analyst at Barclays Plc in New York, wrote today in a report. Still, “the broader macro environment remains supportive for prices given low interest rates and global balance sheet expansion.”

Gold futures for April delivery fell 0.5 percent to $1,659 an ounce by 7:47 a.m. on the Comex in New York. Prices reached $1,656.40, the lowest since Jan. 29. Gold for immediate delivery was 0.5 percent lower at $1,658.50 in London.

The London-based World Gold Council is due to release a quarterly report this week that will show nations’ annual bullion demand.

European Ministers…”

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“The dollar declined against the euro, snapping a three-day gain, ahead of a speech by a Federal Reserve official who may reiterate the case to maintain monetary stimulus.

The Dollar Index fell before Fed Reserve Vice Chairman Janet Yellen speaks in Washington today. The yen trimmed gains after Haruhiko Kuroda, a potential candidate to head the Bank of Japan, said additional monetary easing can be justified for 2013. The BOJ holds a policy meeting this week. The Australian dollar weakened after data showed home-loan approvals slid.

“Yellen is one of the doves in the Fed committee,” said Alvin Pontoh, Asia-Pacific strategist at TD Securities Inc. in Singapore. “If she says anything, it’s likely to be dovish and maybe because of that, we’re seeing a bit of euro strength against the dollar.”

The dollar weakened 0.1 percent to $1.3379 per euro at 7:29 a.m. in London, after gaining 1.6 percent in the past three sessions. The greenback slid 0.1 percent to 92.55 yen from the end of last week.

The Dollar Index, which Intercontinental Exchange Inc. uses to track the greenback against the currencies of six major U.S. trade partners, slid 0.1 percent to 80.172. The Japanese currency traded at 123.83 per euro, after climbing 2.6 percent in the past three sessions to 123.87.

The Federal Open Market Committee last month linked its policy to economic indicators for the first time, saying it will keep rates low as long as the unemployment rate is above 6.5 percent and the outlook for inflation is no more than 2.5 percent.

Industrial Production…”

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“Brent traded near a nine-month high in London amid concern that tension with Iran may lead to disruption of Middle Eastern exports. Brent’s premium to U.S. crude narrowed for the first time in nine days.

The European benchmark was little changed after rising for a fourth week, the longest run of gains since July. Iran won’t cede to pressure to halt its nuclear work, President Mahmoud Ahmadinejad said yesterday at a rally in Tehran to mark the 34th anniversary of the Islamic Revolution. Egyptian President Mohamed Mursi’s secular opponents geared up for marches today. Bank of America Corp. said there is a “growing risk” the North Sea grade will rally to $130 a barrel.

“The recent move higher for Brent came amid a combination of geopolitical jitters over potential supply disruptions if violence escalates in the Middle East,” said Andrey Kryuchenkov, an analyst at VTB Capital in London.

Brent for March settlement was at $118.31 a barrel, down 59 cents, on the ICE Futures Europe exchange at 11:05 a.m. London time. The number of futures exchanged was 34 percent below the 100-day average. The contract increased $1.66 to $118.90 on Feb. 8, the highest since May 1. The European benchmark grade was at a premium of $22.80 to the U.S. benchmark, WTI. It closed at $23.18 on Feb. 8, the widest since Nov. 26.

The Brent-WTI spread has widened since Enterprise Product Partners LP said Jan. 31 that capacity will be limited until late 2013 on its Seaway pipeline to the Gulf Coast from Cushing, Oklahoma, the delivery point for the New York contract.

China Imports…”

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“Germany is losing a yearlong borrowing-cost advantage over the U.S. as healing in the 17- nation euro area lures investors to greater returns in Italian and Spanish bonds.

German securities had their worst January since at least 1986 and options traders hold almost three times more bets on further declines than a rally, according to data compiled by Bloomberg. That contrasts with Treasuries, where wagers through derivatives are about even. JPMorgan Chase & Co. says Germany’s 10-year yields will exceed U.S. rates for the first time since February 2012 by the end of the third quarter.

Demand for the euro area’s benchmark assets is waning after European Central Bank President Mario Draghi dispelled concern the bloc may break up and as banks pay back emergency loans two years earlier than required. With confidence recovering from last year’s debt crisis, German two-year note yields climbed to a 10-month high in January from below zero, while relative borrowing costs tumbled in Italy and Spain, the region’s third- and fourth-largest economies.

“Bunds could come under pressure as we expect to see more diversification into higher-yielding peripheral bonds,” said Oliver Eichmann, a money manager at DWS Investment GmbH in Frankfurt, Germany’s biggest mutual fund, which oversees $379 billion. “We prefer Treasuries in the near term.”

Draghi allayed investors’ concern the euro region would collapse after he pledged in July to do “whatever it takes” to hold the currency bloc together. The Stoxx Europe 600 Index of equities has rallied 12 percent since then and a composite gauge of euro-area services and manufacturing output improved to 48.6 in January, the highest level since March.

Crisis Remedies…”

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“Euro-area economic data due this week will probably show the damage inflicted by the region’s sovereign debt crisis with the worst quarterly decline in output for almost four years.

Gross domestic product shrank 0.4 percent in the fourth quarter, according to the median of 45estimates gathered by Bloomberg News. That would be the biggest decline since the first quarter of 2009, when GDP fell 2.8 percent in the wake of the collapse of Lehman Brothers Holdings Inc. The data is due to be published on Feb. 14.

While measures to stem the region’s debt turmoil have helped curb sovereign bond yields from Spain to Greece, at least seven countries of the 17-nation bloc are in recession, leaving 18.7 million people out of work. The European Central Bank President Mario Draghi said last week that “economic weakness” will prevail in early 2013 even as the economy shows confidence stabilizing “at low levels.”

The fourth quarter “is probably the trough of the cycle, Draghi is hopeful that it will be,” said Marchel Alexandrovich, an economist at Jefferies International Ltd. in London. “We should see some improvement in economy in the first half of this year. The question is, whether it’s strong enough” given the risks that lie ahead, he said….”

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“European finance chiefs will seek to win back crisis-management momentum to navigate through emerging political pitfalls after markets signaled last week that the three-year crisis is far from over.

Ministers from the 17-member euro area meet in Brussels today to discuss aid to Cyprus and Greece as a tightening election contest in Italy and a political scandal in Spain disrupt market calm. Group of 20 finance chiefs and central bankers will gather in Moscow Feb. 15-16.

“We don’t know yet how we’re going to get out of the crisis,”Wolfgang Franz, the chairman of Chancellor Angela Merkel’s council of economic advisers, told Welt am Sonntag. “If the crisis is a marathon, we’ve got two-thirds of the course behind us. But the last third is always the hardest.”

European Union leaders who last week reached a seven-year budget agreement that for the first time cuts spending will look ahead to Italy’s Feb. 24-25 elections as polls show the vote might fail to deliver a governing majority. European stocks last week posted a second weekly drop as investor concern about policy roadblocks in Italy and Spain revived.

Yields on Italian 10-year bonds climbed to a year-to-date high of more than 4.5 percent as former Premier Silvio Berlusconinarrowed the lead of front-runner Pier Luigi Bersani. The euro’s climb was broken last week, falling 2 percent against the U.S. dollar to $1.3365, after European Central Bank President Mario Draghi voiced concern that euro strength could hamper the recovery. The currency was at $1.3373 at 9:45 a.m. in Frankfurt.

‘Price Stability’…”

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